How To Differentiate Loan Sharks From Licensed Money Lenders

We are sometimes faced with financial emergencies that need our urgent attention. These situations lead us to look to moneylenders as a more convenient alternative to banks. Borrowing from moneylenders is also easy.

It is worth noting that moneylenders are lifesavers when you are in urgent need of quick cash. The recent years have unfortunately had a major growth of a prohibited industry of loan sharks. The loan sharks pose as fake moneylenders preying on unsuspecting individuals who are in urgent need of cash. They are known for ruthless business dealings. Loan sharks also charge very high monthly interest rates which can go up to 40% or more. They use coercion, threats and intimidate on innocent borrowers.

Knowing that they are running against the law, they pretend to be legitimate lenders to con unsuspecting victims and it has been on the rise according to voluntary welfare organisations. The fact, however, is that they state to be certified moneylenders. It is for this reason that you need to know the difference between a loan shark and a licensed moneylender. This will be of much help to you when you are in search of credit from any lender.

Below are 9 guidelines to help you tell apart who you are to trust and who you need to keep away from.

1. The Ministry Of Law Website Has A List Of The Authorized Moneylenders

Authorized moneylenders are listed on the Singaporean Law Ministry website. Ensure you check the website to establish the moneylender is listed before making any contact. When they are not on the list, there is a likelihood they are a loan shark.

The one situation that may lead a licensed moneylender not to be listed is when they have recently received their license. This may mean that the site has not been updated yet with their licensing information. When such should be the case, you can call the ministry to confirm they are being genuine moneylenders.

2. Authorized Moneylenders Always Have An Office

In accordance with the Singaporean law, it is necessary for approved moneylenders to have an office. The office must match the one they have registered on the Ministry of Laws’ website. In general, a professional lender will carry out his business transactions in well-maintained office within a given building. This is similar to a lawyer and an accountant. Your first meeting and during the contract-signing stage will mostly be done in their office. They can, however, communicate with you by email or phone afterwards.

Loan sharks on the flip side will more often than not have office premises or a fixed telephone line. Based on the illegality of their business, they don’t need to worry about what is stipulated by the law. As a result, the legal obligation of having an office does not apply to them. When you run into a person who claims to be in the money lending business and runs their business dealing completely on the net, then be warned. They can also openly admit to not having office space so watch out. It is likely they are a loan shark or conduct illegal moneylending activities.

3. Check The Address And License Information through The Ministry Of Law

Be very alert since loan sharks can at times use a certified moneylender’s address, name, license number and any given information to create a false sense of trust and security with the unsuspecting victims. To ensure that you are on the safe side, it is highly recommended that you give yourself time to investigate the given information. You need to protect yourself from individuals who claim to be in the money lending business. You can use a few methods to avoid falling victim to their games.

  • Check to ensure that the name, the address and license number are a match. Look up the provided license number against the records contained in the Ministry of Law website
  • Go ahead and finalize the loan application and personally sign the loan contract at the registered address. A licensed moneylender will at all times get you to finalize and sign the loan contract at the registered office and in person.
  • Should you be asked to sign the loan agreement elsewhere, you can be certain that your transactions are not legit. A loan shark may even require you not sign a contract.

4. A Licensed Moneylender Will Use Easy To Understand Language To Explain The Loan Terms

Money lenders are required by the Singaporean law to use simple and understandable language when explaining the loan terms. This covers providing answers to all the questions you may have regarding the loan. They should further explain the interest rates, repayment method and the period of repayment.

If you encounter a money lender who gives you a loan agreement and he fails to elaborate the terms. Be certain to leave and never look back, he is likely a loan shark. Loan sharks are likely not spending the time to work through your queries or even work on a loan repayment scheme, instead to brush you with patronising phases. When in doubt, trust your instincts and walk away.

5. A Licensed Moneylender Will Set Unsecured Loan Amounts On The Basis Of Your Income

Singaporean law has set unsecured loans highest amount based on an individual’s personal income. Since 2016, the rates set are:

  • Amount below $20,000 per year: up to $3,000.
  • Amount more than $20,000 but below $30,000 annually: up to 2 months’ earnings.
  • Amount more than $30,000 but below $120,000 per year: up to 4 months’ earnings.
  • Annual earnings of $120,000 and above: no limit.

When you approach a moneylender who offers you an abnormally high loan amount- higher loan amount than what is legally stipulated for your given income-do consider it as a warning sign: this could be a loan shark you are dealing with.

6. A Licensed Moneylender Will At All Times Have You Sign A Loan Agreement

A licensed moneylender is required by the law to get their customers sign loan agreements. This loan agreement is written by a lawyer and will include information like:

  • The loan interest rate
  • Fees to be charged for late repayment
  • The agreed-upon repayment period

When someone offers to lend you money and they have no drafted contract or even asks you to sign incomplete or a blank contract do not take the offer. Such an individual does not behave plus meet the requirements of an approved moneylender. This person could as well pass for a loan shark.

7. A Licensed Moneylender Does Not Charge Interest Above The Market Rates

All authorized moneylenders are obligated to follow the set Singaporean guidelines on interest rates charges. As at 1st October 2015, the highest interest rate in the market has been set at 4% a month. Authorized moneylenders never charge more than the given rate. Loan sharks will often charge far beyond the market interest rate. They charge 40% a month or at times amounts above this.

8. A Licensed Moneylender Can Charge You No More Than 3 Types Of Fees

According to the Singaporean law, moneylenders are only permitted to charge for only three types of fees – other than the interest rate.

The fees include:

  • In the rare case where a loan is defaulted: late repayment fees of not more than $60 a month and late percentage rate fees of not more than 4% are to be charged on the outstanding principal amount. It is worth noting that late interest rate fees do not accumulate like the regular interest. They compound each month on the default amount of the principal.
  • Legal fees that may arise from any court challenge
  • You will be required to pay an up-front service fee which may not go beyond 10% of the loan value.

When a moneylender tries to charge you fees that are above the maximum rate, it is likely you are transacting with a loan shark. An example being, when a lender says that you are to pay $100 monthly as late payment fees, these are illegal fees they are charging. An authorized moneylender would not knowingly charge you such fees.

9. Loan Sharks Habitually Use Abusive Language And Threats

As a final point, loan sharks often rely on intimidation, threats and abusive language when collecting their fees. Professional procedures do not allow licensed moneylenders to make use of such tactics. When you come across a lender whose reputation is the use of threats and abusing customers; stay clear. This could very much be a loan shark.

Sadly such tactics usually start after a loan has been confirmed and given. A loan shark will appear friendly at the first encounters. He will later become abusive when he is collecting his fee. Always ensure to check the Moneylenders Registry to confirm whether someone claiming to be a lender is listed as a license holder.

Be Safe, Be Aware

When it comes to borrowing money, be sure you know your rights to promote your financial safety. There are very many loans sharks working in Singapore, who prey on innocent unsuspecting people. These people fall as victims of loan sharks since they lack the information needed to reach good financial decisions.

Consider sharing the information you have gathered with your family and friends. It could save them from falling victims of such illegal business.

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